One of the best ways to ensure your children grow up financially fit is to give them practice managing money with an allowance.
But what’s the best way to do an allowance?
Ron Lieber, personal finance writer for The New York Times
, says he and his wife pay their 7-year-old daughter $3 a week, no chores necessary.
Lieber’s daughter puts $1 in a “save” jar and $1 in a “give” jar for a cause of her choosing. The final $1 she can spend as she wants. Lieber’s reasoning is that an allowance is a teaching tool, and making it contingent on chores muddies the issue.
However, 89% of parents who pay their children an allowance require them to earn it somehow, but only 81% have spoken to their kids about money management, according to a survey conducted by the American Institute of CPAs
. More parents had spoken to their kids about good manners, their grades, and healthy eating habits than how to handle their money.
So how should you handle an allowance with your own children?
Use it as a Teaching Tool
Regardless of how your children earn an allowance, use it as a tool to reinforce good money habits from an early age. Talk about finances early and often, and set a good example.
Consider Matching Their Savings
To encourage savings, tell your children for every $1 they set aside for long-term goals, you’ll match it in their youth savings account
. Share the statements with them so they can see their money grow.
Gradually Introduce them to Financial Products
After a few years of depositing their allowance into a savings account, you can later help them open a checking account
, and show them how to manage it wisely. You can teach them how to write checks, set up an online account
, and set up account alerts to avoid overdrafts.
Research shows that kids who learn to manage money at an early age are better prepared to handle their finances when they leave home. And, ultimately, teaching children good money skills is a sound investment for parents, who often are the ones helping their adult children when they run into real-world problems.